Green Signal

Nothing can flourish in isolation and a perfect way to illustrate this is the story of “Economic Liberalization in India”. The Indian government considered it best to guard the domestic industries against any kind of foreign competition. But this step had more negative impacts than positive outcomes. And to find out about those negative impacts read further…

Prior the 1991 liberalization reforms India’s closed door economy was confronted with economic crisis. These crises were shaped by problems like depreciation of the Indian Rupee against the foreign currency and huge fiscal imbalances. These traces of financial difficulty for India began surfacing in the mid 1980s.

Balance of payment crisis to be simply put, is imbalance between the imports and exports of a country. But in realistic terms in the pre liberalization era such an imbalance would be an understatement to quote the condition of Indian economy that time.

To make the situation worse India was denied credit by the Indian central bank - Reserve Bank of India. This was done because the foreign reserves of India were not enough to even afford three weeks worth of imports then. All thanks to the Indian insular economy which had more imports (from countries like Russian) than its exports and closed doors for Multinational Corporations pre LPG reforms.

In such a grave condition it was the International Monetary Fund which then came to rescue India from the verge of economic catastrophe.  But help from IMF came for a cost which can be better termed as economic reforms of 1991. To fulfill the condition of IMF as a part of their bailout India’s 9^th Prime Minister Dr. PV Narasimha Rao roped Dr. Manmohan Singh the Finance minister then and implemented the globalisation reforms in India in 1991. These economic reforms resultant of a deal with IMF due which India had to go through changes in terms of its economic structure and trade policy with the rest of the world.

Prior to this change in the economic policy the Indian government had been protecting its domestic industries from the rivalry by the foreign market. In such conditions the domestic industries had no incentive to perform better or match the standards of the foreign market. The consumers on the other hand had to purchase whatever was available to them in the Indian domestic market. Hence, the Indian consumers in the pre globalisation era were deprived the option or variety.

The liberalization policy, however, changed the face of Indian economy by leaps and bounds. The trade policy had undergone complete transition. India lifted may of its trade barriers against other countries from entering the Indian market and selling their products.

Now certain sectors like Infrastructure, automobiles, Information Technology, Food and beverages were open for Multinational Corporations to set their businesses in India. They started pouring in not only capital but also technological knowledge and other valuable resources as well. This lead to a surge in the Gross Domestic Product (GDP) and upliftment of the economy as a whole. By mid 90s the private capital had surpassed the public capital. India’s foreign reserves grew from 1 billion dollars to 140 billion dollars in a short span of four years after liberalization.

Nevertheless, many did not welcome this change. Like every new policy even this step by the government was detested by the small domestic companies which could not stand the competition. Small industries which did not have resources to expand and grow could not survive in the age to globalisation and had to exit the markets. Thus, the concept survival of fittest came into being for the Indian economy.

More than a decade later of this economic revolution in India, in the late 2000s it was time for India to see the other slope of Globalization. This was a negative and downward facing slope called “Recession”. Crisis like stock market crash, obstacles in banking sector, other financial crisis in U.S.A and its detrimental effects in the world economy are also effects of Globalization. India too had to bear its part of crisis like the other countries. One of the worst hit sections of the society was the hard-working middle class who were fired from their jobs and for others salaries were reduced. Investors too had to face a tough time as the stock market was covered by gloom worldwide. Nevertheless, India made a speedy recovery from this economic illness but everyone realized that in the era of globalization when a superpower like U.S.A sneeze the rest of the world economy catches cold.

Moreover, what is interesting to note about the period post recession is that developing countries recovered better and faster than the developed ones. This ‘Reversal of fortunes’ is ironical and of the many impacts of globalization. Nevertheless, what catches the attention of aam adami (common man) are the negative implications of globalisation like inflation, hike in petrol prices, fall in investment, depreciation of rupee, etc. By dint of such a situation we tend to overlook the progress that India made against the other developing nations in the world in recent past. The introduction of the rupee symbol, increasing GDP growth rate, strong spending on infrastructure for a strong base, boon of food security bill across India to as many as 200 villages and the list continues. The ones mentioned are just a few examples which remind us of the caliber that this country possesses to prove that it is ready to make itself a prominent figure in the global economy.